State control over wholesale trade, credit, foreign trade and foreign investment

Subsidies for basic products (those listed in the libreta or ration book) putting pressure on public expenditure

Limited access to external funding

Exchange rate unrelated to reality, upholding dualism of the economy, the black market, the scarcity economy and the informal sector

Lack of statistical transparency

Risk assessment

An economy suffocated by US sanctions

In 2020, the Cuban economy will continue to suffer from tighter US sanctions introduced by the Trump administration in 2019. The ban on cruises to Cuba from the United States decided in June 2019 by Washington is a real blow for the tourism sector (10% decrease forecast in 2019 compared with 2018). More generally, economic activity will continue to be hurt by the emergency energy saving measures implemented in September 2019 to address the oil shortage. Since Cuba produces only 47% of the oil needed for its domestic consumption, it has had to deal with the even greater disruption of Venezuelan oil supplies, had since US sanctions on Venezuelan oil were tightened in the spring of 2019. The cessation of deliveries in September 2019 led to the suspension of non-essential activities on the island to save the remaining oil. Further delivery disruptions are likely in 2020. Moreover, the Cuban government's bet on FDI to support growth is under considerable threat from the US decision in May 2019 to apply Article 3 of the Helms Burton Act. The article, which had not been implemented since the law’s adoption in 1996, allows any American company or citizen to use American courts to sue entities profiting from assets expropriated in Cuba since January 1, 1959. The possibility of lawsuits could strongly discourage new foreign investment in the country, particularly in the country's flagship sectors, namely tourism, agri-food and pharmaceuticals. The Cuban government's business-friendly measures will not be enough to fill this investment gap. Of note are the possibility for state-owned enterprises to reinvest part of their profits and the authorisation given to suppliers in the Mariel special economic zone to retain part of the foreign currency they receive. Household consumption is set to suffer from strict controls introduced in September 2019 on the remittances that expatriates in the United States can send to relatives who have stayed in the country, i.e. USD 1,000 over three months per relative for each expatriate. The increase in the monthly minimum wage for civil servants to USD 16.4 since the summer of 2019 will not be enough to offset the impact of US sanctions. Inflation will remain low owing to price controls introduced in August 2019 and more muted economic activity.

Public and current accounts exposed to external constraints

Tax revenues will be affected by the stagnation of activity in 2020, which will reduce sales tax revenues, as well as by the weakening of Venezuelan aid. Public spending, which is not very flexible given the large share of operating costs, is expected to increase with the rise in civil servants' salaries and a pension system that is a drag on the budget. Despite the lack of reliable data, the government's willingness to continue to invest heavily in the economy suggests that the fiscal deficit will increase. The country's debt should therefore continue to grow and will be financed by sovereign bond issuance to local banks and by Chinese and Russian loans in the absence of access to international financial markets.

The current account should continue to show a slight, albeit smaller, surplus. Goods imports will likely decline following the government's decision to cut the amount imported due to the lack of foreign exchange. However, the need to buy oil at market prices due to lower Venezuelan oil shipments should lessen the extent of this reduction. Goods exports are set to be more dynamic. Sugar prices are rising, driven by lower world production, while the price of nickel is due to surge in response to lower Indonesian production. These new dynamics should lend support to goods exports, of which nickel and sugar are the main components. Conversely, the balance of services will show less vigorous growth, given the new restrictions on tourism and the recent expulsion of Cuban doctors from Brazil, which will limit exports of medical services, the main source of foreign exchange. The expected decrease in expatriate remittances following the new US sanctions should likewise reduce this current surplus. This situation poses a risk to Cuba’s low foreign exchange reserves in the face of rising external debt (+53% from 2013 to 2016).

Little political change in sight

The implementation of the constitutional reform approved by referendum at the beginning of the year was the main highlight of 2019. Key measures include a decentralisation drive in economic planning, as well as the creation of a Prime Minister's office to divide power within the executive branch. Executive powers are now shared between Miguel Diaz Canel, president since 2018, and Manuel Marrero Cruz, appointed in December 2019. The continuation of the one-party system with Raul Castro at the head of the Cuban Communist Party until 2021 suggests however little political change. The international situation will be marked by very tense relations with the United States and the search for new allies to deal with the fall of Venezuela, with China and Russia in the lead.